Figure: Supply and Demand the Figure Depicts a Constant

question 47

Multiple Choice

Figure: Supply and Demand The figure depicts a constant cost industry. What happens if there is an increase in demand?

• A) The price of the product stays at $10, although there may be a temporary shortage in the short run.
• B) The price initially increases above $10 in the short run, but the entry of new firms and expansion of existing firms will push the long run price back down to $10.
• C) The price initially increases above $10 in the short run, but the increased demand for resources will drive the long run price up even higher.
• D) The price of the product stays at $10 in the short run, and then decreases as new firms enter the industry.

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Definitions:

Skilled Worker

An employee who possesses specialized knowledge or abilities, typically acquired through training or experience.

Labour Cost

The total expense incurred for hiring employees, including wages, benefits, and taxes.

Labour Efficiency Variance

A cost management tool used to measure the difference between the actual labor hours used and the standard labor hours expected to produce a certain level of output.

Direct Labour Standard

A benchmark for the amount of work (measured in labor hours or costs) expected to produce a certain quantity of goods.